A firm is considering the following two separate options. Option1. Build either a mini theme park...
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A firm is considering the following two separate options. Option1. Build either a mini theme park or a 10 unit chalet on a parcel of land located by the beach side area. Adequate funding is available, and both projects are known to be acceptable. The mini theme park requires an initial investment of RM1,600,000 and is expected to provide operating net cash inflows of RM300,000 per year with an expected increase by 10% each year for 10 years with an expected rate of return equivalent to 8% per annum. The 10 unit chalet is expected to cost RM1,500,000, and to provide a growing stream of operating cash inflow over a 10 year life. The initial operating net cash inflow is RM220,000 for the first year and it will increase by 5% each year Option 2 Invest in any or all of the four projects whose relevant cash flows are given in the following table. The firm has RM6,000,000 budgeted to fund these projects, all of which are known to be acceptable. Initial investment for each project is the same for all projects which is RM1,500,000. The rate of return for all Operating cash outflow Project B RM1,500,000 (for each project) Project A Year 1 Cash Outflow Project C Project D Operating Cash Inflows RM RM 150,000 180,000 240,000 260,000 RM RM 450,000 220,000 119,000 318,000 117,000 (120,000) 115,000 214,000 313,000 412,000 211,000 (230,000) (130,000) 230,000 230,000 340,000 220,000 (113,000) ( 96,000 ) 104,000 240,000 2. 3. 380,000 450,000 5. 330,000 330,000 430,000 6. 7. 8. 394,000 9. 10. PVIFA 8% 0.9259 Period PVIF 8% FVIF 8% FVIFA 8% 1.0000 2.0800 3.2464 1 0.9259 1.0800 1.7833 2.5771 3.3121 1.1664 1.2597 0.8573 3 0.7938 1.3605 4.5061 5.8666 4 0.7350 1.4693 0.6806 0.6302 0.5835 0.5403 5 3.9927 4.6229 1.5869 7.3359 8.9228 10.6366 7 5.2064 1.7138 8. 5.7466 1.8509 1.9990 12.4876 14.4866 0.5002 6.2469 10 0.4632 6.7101 2.1589 Compute the following for each option. 1. The NPV for each option 2. The ANPV for each investment option 3. Payback period for all options 4. Profitability index for all options 5. Recommend which alternative is more favorable in terms of accept-reject or ranking decisions. A firm is considering the following two separate options. Option1. Build either a mini theme park or a 10 unit chalet on a parcel of land located by the beach side area. Adequate funding is available, and both projects are known to be acceptable. The mini theme park requires an initial investment of RM1,600,000 and is expected to provide operating net cash inflows of RM300,000 per year with an expected increase by 10% each year for 10 years with an expected rate of return equivalent to 8% per annum. The 10 unit chalet is expected to cost RM1,500,000, and to provide a growing stream of operating cash inflow over a 10 year life. The initial operating net cash inflow is RM220,000 for the first year and it will increase by 5% each year Option 2 Invest in any or all of the four projects whose relevant cash flows are given in the following table. The firm has RM6,000,000 budgeted to fund these projects, all of which are known to be acceptable. Initial investment for each project is the same for all projects which is RM1,500,000. The rate of return for all Operating cash outflow Project B RM1,500,000 (for each project) Project A Year 1 Cash Outflow Project C Project D Operating Cash Inflows RM RM 150,000 180,000 240,000 260,000 RM RM 450,000 220,000 119,000 318,000 117,000 (120,000) 115,000 214,000 313,000 412,000 211,000 (230,000) (130,000) 230,000 230,000 340,000 220,000 (113,000) ( 96,000 ) 104,000 240,000 2. 3. 380,000 450,000 5. 330,000 330,000 430,000 6. 7. 8. 394,000 9. 10. PVIFA 8% 0.9259 Period PVIF 8% FVIF 8% FVIFA 8% 1.0000 2.0800 3.2464 1 0.9259 1.0800 1.7833 2.5771 3.3121 1.1664 1.2597 0.8573 3 0.7938 1.3605 4.5061 5.8666 4 0.7350 1.4693 0.6806 0.6302 0.5835 0.5403 5 3.9927 4.6229 1.5869 7.3359 8.9228 10.6366 7 5.2064 1.7138 8. 5.7466 1.8509 1.9990 12.4876 14.4866 0.5002 6.2469 10 0.4632 6.7101 2.1589 Compute the following for each option. 1. The NPV for each option 2. The ANPV for each investment option 3. Payback period for all options 4. Profitability index for all options 5. Recommend which alternative is more favorable in terms of accept-reject or ranking decisions.
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Option 1 Mini Theme Park Cash Flows PV 8 PV Year 01600000 1 1600000 Y... View the full answer
Related Book For
Engineering Economy
ISBN: 978-0132554909
15th edition
Authors: William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Posted Date:
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